You Can Save Thousands on Your Mortgage with One Trick
Wish you didn’t have to pay so much interest on your home mortgage? There’s one little trick that can help you to eliminate thousands of dollars from the cost of your home – and it doesn’t require any special paperwork, refinancing or additional cash. In fact, you’ll pay out the same amount each and every month that you would normally.
The American Dream Often Begins with a Home Mortgage
As we all know, mortgaging a home means that you will be paying interest to the mortgage company. As most consumers don’t have the kind of cash on hand to afford to shell out $100,000 – $600,000 on a home purchase, the interest is readily accepted. And why not? For most of us, home ownership is part of the American dream. How many individuals plan to finish school, begin a lifelong career, meet the man or woman of their dreams, purchase a home, start a family, raise children, enjoy all that life has to offer and retire comfortably? Most of the people I know have that dream. Home ownership means that you’ve accomplished a part of that dream and although a mortgage makes the dream attainable for many, it comes at a very expensive cost.
Breaking Down the Home Mortgage
Did you know that if you take out a 30-year mortgage, you will pay for your home almost twice before you actually own it? That’s quite a price to pay for a small piece of the American Dream! Consumers that choose ARMs (Adjustable Rate Mortgages) or a Balloon (Interest-Only Mortgage) risk even more. Interest rates constantly fluctuate and can rise to alarming rates at any time. In the case of the Balloon, a lump sum is due in order to keep the home at the end of the predetermined period. However, many a consumer has fallen into these mortgage traps in order to purchase “more home” than they could actually afford. Because of these factors, the fixed rate mortgage is often the wisest choice.
Even fixed rate mortgages come with costs that consumers may not initially realize. PMI (private mortgage insurance) is a cost that is associated with mortgages taken out for more than 80% of the home’s value. The rate can be as little as .5% to as high as 1%. For a home loan of $200,000, this would result in an additional $2000 spent in interest. This is, of course, on top of the fixed rate mortgage interest, which currently averages 4.00% for a 30-year mortgage and 3.375% for a 15-year mortgage for those with good credit.
If you are thinking about buying a home, you can avoid PMI insurance by ensuring that you make a 20% down payment on your new home. However, that’s not the only trick that you can use to save thousands on your home mortgage.
How to Save Thousands on Your Home Mortgage
At this point, you’re probably thinking, “Sure, what kind of trick could save me so much on my mortgage?” Right?
The thing is that what I’m about to tell you is really so simple that anyone can do it. It requires no special training, no paperwork, no extra cash and no use of super powers. I promise. All it takes is the will to do this one little thing twice a month, and that is make half of your mortgage payment.
Yes, by breaking your mortgage payment into two bi-weekly payments, you can save a thousands on the cost of your mortgage over the course of your loan. Why? Because you are beating the interest down with each payment. When you make payments bi-weekly, the result is a significant savings on interest. Don’t believe me? Check out this mortgage calculator to see the breakdown.
I’ve done the math on a $90,000 mortgage at the average interest rates I mentioned above. The savings would be $2,552.00 over the course of a 15-year mortgage and $10,098 over the course of a 30-year mortgage. That is extra cash that you can put towards your retirement plan, a college fund for your kids, a rainy day fund, Christmas fund or even household bills.
Is Saving Money on Your Mortgage Not Enough of an Incentive?
If the monetary savings isn’t enough to influence you to make bi-weekly payments, here’s something else to think about. Not only will you save thousands of dollars off the cost of your home during the life of your mortgage, but you’ll also be able to pay it off sooner! It’s true. A 15-year mortgage will be paid off a year and a half earlier and a 30-year mortgage will be paid off 4 years and 1 month earlier!
Now, think about how much money you would save if you could make bi-weekly payments and manage to make the equivalent of an additional 2 months worth of mortgage payments each year. It’s easier than you think and I’ll explain it in a future article.
Have another trick you use to save money on your mortgage? Share it with us in the comments section below!
Image credit: 401k on Flickr.